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November 30, 2012

Jeff Gundlach: ‘Financial Catastrophe Just Over the Horizon’

Two phases of the coming debacle are already down, third phase on the way

“If you have tears, prepare to shed them now.”

It’s Mark Antony, from Act Three, Scene Two of “The Life and Death of Julius Caesar,” a phrase Jeff Gundlach, known for intertwining Shakespeare in his speeches, has used a lot lately.

The star manager and CEO of DoubleLine Capital is pessimistic about market prospects for the near term, a theme he hammered home in Investment Advisor magazine’s October cover story, “What’s Jeff Gundlach Thinking?”, and, according to Bloomberg, in Bloomberg Markets magazine’s January issue.

At a recent stump speech in downtown Los Angeles, Bloomberg reports, Gundlach told a luncheon crowd of about 200 financial advisors to prepare for “the financial catastrophe on the horizon.”

“The first phase of the coming debacle consisted of a 27-year buildup of corporate, personal and sovereign debt,” according to Bloomberg. “That lasted until 2008, when unfettered lending finally toppled banks and pushed the global economy into a recession, spurring governments and central banks to spend trillions of dollars to stimulate growth (the second phase).”

In the “ominous third phase,” he predicted another crisis: Deeply indebted countries and companies, which Gundlach didn’t name, will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy—at the risk of higher inflation in coming years.

Bloomberg noted that Gundlach, 53, didn’t say when the third phase would begin, but he told the audience they needed to gradually get ready for it.

“I don’t believe you’re going to get some sort of an early warning,” Gundlach said. “You should be moving now.”

He recommended buying hard assets: Gemstones, art and commercial real estate are high on his list. Which is another story altogether.

On the same day as Investment Advisor’s interview for the October cover story, Gundlach's home was burglarized of 13 pieces of valuable art, in addition to wine, wrist watches and cash. Thieves also took Gundlach’s red 2010 Porsche Carrera 4S. In a dramatic and chaotic press conference in downtown Los Angeles two weeks later, the star fund manager increased the reward offered for the return of his stolen property from an initial $200,000 to $1.7 million. The paintings were eventually recovered by police and two people arrested.

If that bit of drama positively resolved itself for Gundlach personally, professionally he’s doing just as well.

Bloomberg says his flagship $35.8 billion DoubleLine Total Return Bond Fund (DBLTX) gained an annual average of 13.2% from its inception in April 2010 through Nov. 28 of this year.

PIMCO’s Bill Gross, the big dog in the fixed income space and to whom Gundlach lost the title of Morningstar’s Fixed Income Manager of the Decade in 2010, earned an average of 7.6% during the same period in his much larger $281 billion PIMCO Total Return Fund (PTTRX).

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